The new big thing for the era ahead: think 'collaboration'--universally underutilized, but with enormous potential to drive competitive advantage.

AuthorSanford, Linda
PositionCOMPETITIVE EDGE - Importance of innovation - Column

WORKING IN a leading technology company, I have come to understand the importance of innovation: It can transform business, create new markets, and drive economic growth. In today's uncertain economic climate, however, innovation has become less of a priority among many business leaders. Corporations have generally reduced their focus on research and development, and some pundits have even proclaimed that innovation is dead.

Yet in the right form, innovation can still be a tremendous driver of shareholder value. First, though, we must be careful to understand the distinction between invention and innovation. Invention is the creation of something new--"the next big thing," if you will. Innovation is the application of invention to business or societal needs.

From that point of view, the reinvigoration of innovation is a critical issue not just to business leaders, but to everyone. Since I come from IBM, you might expect me to tout technology as the answer, but I contend that the primary way to drive new innovation is by investing in people first.

The companies that can create a culture of innovation are the companies that will succeed in the next era of business, create sustained brand equity, and drive greater shareholder value. That culture is defined by its ability to anticipate customer needs and market dynamics, then quickly respond with flexible business processes and technology to meet those challenges.

Investing in people and creating a culture of innovation might seem counter-intuitive as companies are slowly emerging from five years of using cost containment as a primary financial management strategy. Every executive I talk with is interested in how to sustain productivity gains going forward--and they realize cost cutting can now go only so far. They're not interested in buying hot technology just because it's the newest thing. They're looking for top-line growth.

This was supported recently in the findings of The Global CEO Study 2004, in which IBM surveyed 456 CEOs worldwide to identify their business agendas for the next two to three years. In the study, four out of five CEOs pointed to revenue growth--not cost containment--as their top priority for boosting financial performance.

The CEOs said the best way to drive new growth is through increasingly differentiated products and services. But they also said this type of innovation will be impossible without a renewed focus on people, including retention and re-education to keep...

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